The man who turned a tiny burrito shop near the University of Denver into an international brand will soon be out as Chipotle Mexican Grill’s CEO.

Denver Post file

Chipotle CEO Steve Ells is shown the Chipotle between 16th and 17th & California St. in downtown Denver in 2004.

Steve Ells, the founder of the Denver-based fast-casual chain, will leave his post as chairman and CEO to become executive chairman after a replacement has been found, the company announced Wednesday.

A committee that includes Ells and directors Ali Namvar and Robin Hickenlooper, wife of Colorado Gov. John Hickenlooper, has been formed to find a leader with demonstrated turnaround expertise, the company said.

Whoever takes the job will be tasked with helping the chain climb out of protracted market malaise caused, in part, by outbreaks of foodborne illness linked to some of its restaurants, first in 2015, then again earlier this year.

Co-CEO Monty Moran stepped down in December, leaving Ells with control of the company as it faced pressures from activist investor Bill Ackman, whose Pershing Square Capital hedge fund took a nearly 10 percent stake in September 2016. Ackman said then that he wanted improvement in Chipotle’s “operations, cost structure, management and strategy.”

Ells’ announcement comes after Chipotle missed earnings projections in the third quarter, sending the company’s stock tumbling late last month. That setback was spurred in part by a $30 million data-breach liability assessed against the company.

“I am incredibly proud of Chipotle and our people — and grateful to our loyal customers — and while we are continuing to make progress, it is clear that we need to move faster to make improvements,” Ells said Wednesday in a news release. “Simply put, we need to execute better to ensure our future success.”

Ells called his decision to step down “the right thing to do for all our stakeholders.”

He added: “It will allow me to focus on my strengths, which include bringing innovation to the way we source and prepare our food. I am confident that this will allow us to deliver value for our shareholders, and provide rewarding opportunities for our employees. Chipotle has vast unrealized potential.”

Ells founded Chipotle in 1993 in a former ice cream parlor at the corner of East Evans Avenue and South Gilpin Street, near the DU campus. Inspired by burritos he had tried in California, Ells and company, over the next quarter century, turned plump meals tucked into massive flour tortillas and wrapped in silver foil into a fast-dining icon.

The company now operates more than 2,370 restaurants worldwide, with another 130 or more expected to open in 2018.

The market responded positively to the news of Ells’ impending role change. Prices surged by $16.13 Wednesday, or 5.6 percent, closing at $301.99. At their peak, before the 2015 foodborne-illness crisis, shares closed at $757.77.

Analysts have applauded the move.

“Steve Ells’ success in founding and growing Chipotle is not in question, but his ability to run a larger publicly owned company and to guide it through choppy waters was,” Neil Saunders, managing director of retail for international data and analysis firm GlobalData, said in a news release. “While not entirely his fault, the continued lack of momentum concerned investors and raised questions about his leadership and his vision for the group.”

At least one major shareholder has publicly endorsed it, too.

“We fully support Steve’s decision,” a company spokesman for Ackman’s Pershing Square wrote in an email Wednesday. “We remain excited as ever about the future of the company.”

Ackman, a billionaire, has made headlines in recent years both for his efforts as an activist investor in companies he thinks are underperforming — such as Chipotle — and for betting against companies he thinks are set to fail. For years, he has been short-selling stock in Herbalife, a global nutritional supplement and weight management company, describing it as a pyramid scheme. That company’s stock price has risen 43.5 percent over the past 52 weeks.

Ells’ departure as CEO was not preordained by Ackman’s stock buy, said Paul Seaborn, an assistant professor at DU’s Daniels College of Business, but Chipotle’s inability to correct issues identified at the time Ackman got involved made it more likely as time went on. At DU last winter, Seaborn co-organized a business case study competition focused on Chipotle. He said the issues that student teams were asked to consider included the need to win back former customers, and food safety. Some of those teams recommended leadership changes to right the ship.

“A lot of the issues that our students were analyzing and considering last winter are still unresolved for Chipotle,” Seaborn said. “They had an opportunity to try and push back on the need for management changes, but they were unable to show the kind of results that would preclude that.”

What needs to be done to turn Chipotle around is up for debate. Ackman has speculated that adding breakfast to the menu or creating drive-thru locations could help. But Seaborn is skeptical of that.

For a long time, part of what set Chipotle apart is that customers perceived it as different from traditional fast-food restaurants, Seaborn said. It has natural ingredients and a unique corporate culture that set it apart from the McDonald’ses and Burger Kings of the world. If the next CEO is a restaurant-industry veteran who takes steps to drive the company more in the direction of major companies like that, it could just as easily repel customers, rather than persuade them, to give Chipotle another shot. He noted Ells and Moran were industry outsiders, which added to the unique perception of their company.

“I think it’s really unclear what it will take to get the public back. Queso alone is probably not going to be enough,” Seaborn said. “The background of this new CEO, I think, will speak to the answer (that the board) thinks is right for this question. If we see them hiring a food-service industry veteran from another big name chain that’s a really different message than if they hire someone not associated with the other big brands.”

Chipotle introduced Genuine Queso, a rare new menu item for the chain, in September. Although Ells told analysts last month he was satisfied with the new product, many customers complained that the company’s all-natural version of the dip fell short of varieties made with processed cheese.

Joe Rubino focuses on consumer news for The Denver Post. He wrote for the Broomfield Enterprise, Boulder Daily Camera and YourHub before joining the Post's business team in 2017. A Denver native, he attended Kennedy High School and the CU journalism school. He once flew a plane for 30 seconds on assignment.

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